Metal stocks add sheen on positive global cues

Metal stocks add sheen on positive global cues

After consistently falling for the first five-and-a-half months of 2023, there has been a noticeable change in the fortune for metal stocks. After declining by over 15% till May 16 (year-to-date), the Nifty metal index has risen by 9.64% in the past one month.

The underperformance of the index since the beginning of the year was largely attributed to low demand in China since it is one of the major consumers of non-ferrous metals globally, and recessionary fears in the US.

More importantly, China’s central bank’s decision to cut the short and medium-term lending rates for the first time since August has given hopes that there will be a further growth in the economy. In addition, the Chinese government is also mulling a stimulus package to fuel growth.

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The Indian government has also given a significant push to the infrastructure segment that will provide a fillip to the sector.

According to a Motilal Oswal report: “Domestic steel demand is expected to maintain a growth of 6–7% with a higher outlay on infrastructure and impetus by the government. Indian steel exports might see an uptick…”

Metal stocks, therefore, have taken the positive global cues and moved up in anticipation. In the past month, while Nifty gave a 2.95% return, the Nifty metal index returned 9.54%.

Of the 15 constituents, 13 have positively contributed to the index in a month, except for Ratnamani Metals and Hindustan Zinc. The stocks which have given maximum returns are Adani Enterprises (32.84%), Welspun Corp (16.78%) and Jindal Stainless (16.30%).

“The domestic demand is likely to go up for the next couple of years. As the input cost has come into control, the pricing pressure has come down and number should keep improving from now on. The government’s spending on infrastructure as well as capital expenditure by the private sector are tailwind supportive for metal sector”, said Gaurang Shah, senior vice president, Geojit Financial Services.

Sachitanand Uttekar of Tradebulls Securities, said: “Metal stocks were underperforming for a long time, but the recovery we have seen in the last few months is quite commendable. For the last two years, the index has been oscillating between 5,800 and 6,800 levels. This oscillation may continue for the next couple of weeks. We may have an intermediate correction, but it will be a healthy one.”

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“Unless we see this index falling below 5,950, the trend will continue to be on the higher side. The support level would be 5,850. Although, I don’t see the fall happening as the index has maintained its levels well. The rotation in the market is very healthy and we may see fresh highs within this particular series itself. Tata Steel and Hindalco would be the preferred choices from the basket,” he added.

The metals and mining sector accounts for 3.43% weight on Nifty, with Tata Steel having the highest weight at 20.79% in the Nifty metal index.